A consumer spends his limited income on three goods such that the MU_X = 4, MU_Y = 4, MU_Z = 4; and P_X = 4, P_Y = 2, P_Z = 1. Which of the following statements is (are) TRUE?

Question

Quizplus · Accepted Answer

I. The marginal utility per dollar of X is equal to 1 since MU_X / P_X = 4/4 = 1. II. The consumer is currently not spending his income in the most efficient way since the marginal utility per dollar of Y is higher than the marginal utility per dollar of X or Z. MU_Y / P_Y = 4/2 = 2 and MU_Z / P_Z = 4/1 = 4. III. It is not possible to determine whether the consumer is spending all of his income since we do not know the total amount of income he has available to spend.

A Consumer Spends His Limited Income on Three Goods Such